"Generational Storm" Will Undo Elderly Entitlements

April 22, 2004

Future tax rates will have to increase to 70 percent in order to pay for entitlement programs, according to the new book, "The Coming Generational Storm," by National Center for Policy Analysis senior fellows Laurence J. Kotlikoff and Scott Burns.

The problem, says Kotlikoff and Burns, is that the government's entitlement programs work like a pyramid scheme -- requiring a greater number of workers on the bottom in order to pay for retirees at the top:

In 2000, the number of people in the United States under age 20 was 82 million, compared to 35.5 million senior citizens.

However, by 2080 senior citizens will outnumber those under age 20 -- thus inverting the pyramid and requiring more tax dollars from a smaller number of workers in order to support entitlement programs.

The authors blame both Democratic and Republican administrations for failing to address the issue, and they recommend a few actions to help alleviate the coming burden, such as:

Eliminating the payroll tax, instead substituting a federal tax that will pay for already accrued benefits.

Replacing the Medicare plan with "vouchers" of various dollar amounts given to seniors based on their health condition; this would eliminate the current incentive to consume unnecessary health care services.